Health-care law may pose challenges for IRS, taxpayers

The new federal health-care law may pose compliance challenges for taxpayers and the Internal Revenue Service, an IRS ombudsman reported Wednesday.

The agency, which will be responsible for administering major aspects of health insurance finance, is neither structured nor funded to effectively oversee social programs, the National Taxpayer Advocate Service said in a news release.

In addition, a tax reporting requirement in the health-care law "may impose significant burdens on businesses, charities, and government agencies," the advocate service reported.

Those burdens "may turn out to be disproportionate as compared with any resulting improvement in tax compliance," the head of the advocate service, Nina E. Olson, said in the release.

The advocate service is an independent organization within the IRS that helps taxpayers solve problems with the agency and recommends reforms.

Though the IRS's main mission is to collect taxes, it has been given a key role administering health insurance premium subsidies, tax credits for small businesses, assessments on employers and the mandate that beginning in 2014 everyone obtain insurance.

"I have no doubt the IRS is capable of administering social programs, including health care," Olson said. "But Congress must provide sufficient funding and the IRS itself must recognize that the skills and training required to administer social benefit programs are very different from the skills and training that employees of an enforcement agency typically possess."

The tension between enforcement and social service missions could affect the IRS's ability to administer health-care credits and penalties "in a fair and compassionate way," Olson said.

Beginning in 2012, the health-care legislation enacted in March will require all businesses and tax-exempt organizations to issue an IRS form called a 1099 to vendors from whom they buy goods totaling $600 or more annually -- and to file a copy to the IRS. The requirement is intended to reduce the under-reporting of business income, but it will demand thorough record-keeping on the part of buyers.

"For example, if a self-employed individual makes numerous small purchases from an office supply store during a calendar year that total at least $600, the individual must issue a Form 1099 to the vendor and the IRS showing the exact amount of total purchases," the IRS release said.